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The government has decided not to proceed with a $2-billion program to buy new heavy armoured vehicles for the army.

The decision to cancel the program for new close-combat vehicles, first reported by CBC News on Thursday, was confirmed by Chief of Defence Staff Tom Lawson at a Defence briefing Friday morning.

Lt.-Gen. Marquis Haines told reporters the vehicles are no longer needed because of recent upgrades to light armoured vehicles already in use. Haines says the improved LAVs will offer soldiers the same degree of protection.

Three different defence contractors were bidding to build the close combat vehicle for the army: Nexter; BAE Systems Inc.; and General Dynamics Land Systems Inc.

General Dynamics is the London, Ont.-based manufacturer of the army's current fighting vehicle, the LAV III.

Some industry insiders suggest that the General Dynamics vehicle called the Piranha 5 was struggling in the competition against Nexter's VBCI and BAE's CV90.

The program to buy 108 heavy armoured personnel carriers for the army was conceived during the height of the Afghan war. Four years later it appears the government has reconsidered its commitment to the close combat vehicle program.

The CCVs were to be larger, more powerful and more heavily armoured than Canada's LAV III vehicles used extensively in Afghanistan. The LAVs frequently suffered mobility issues in Afghanistan and also were found to be too lightly armoured to provide adequate protection against roadside bombs planted by insurgents.

That led the military to plan for new vehicles that would provide enhanced protection.

'Reset' defence strategy

Sources tell CBC News the army was recently asked to re-evaluate its need for the vehicles. That process allegedly led the army to restate its desire to buy the heavier fighting vehicles.

The federal government has decided not to go ahead with a plan to buy heavy-armoured close-combat vehicles. The Nexter VBCI armoured vehicle was one of three in competition for the $2-billion contract first proposed during the height of the Afghan war. (Nexter)

The roots of that "reset," as it's called, are in new budget realities that have already put increased financial pressure on allocations used to pay for military training.

The Conservative plan was first announced in 2008. It called for a massive investment in new hardware for the military, including fighter jets, frigates, support ships, Arctic patrol ships, and an entire family of new vehicles, including two types of trucks and three types of armoured vehicles. One of those armoured vehicles was to be the CCV.

The review of the Conservative defence strategy could end up proposing a smaller force with less hardware and reduced capabilities. In that context, it's possible the government decided the CCV could be one of the first new pieces of army gear to be struck off the list.

That decision solves a budget problem for the army. Recently, retired and current army sources have been quietly complaining about budget pressures they face. The army's readiness budget was cut by 10 per cent year over year from about $3.7 billion to about $3.3 billion. The army has struggled to implement that cut without affecting its operations and maintenance budget — the account that pays for training as well as gasoline and maintenance on vehicle fleets.

Earlier this week it was reported the commander of the army, Lt.-Gen. Marquis Hainse, had ordered his units to park up to half of the so-called B fleet of logistics and support vehicles.

Some defence industry sources say that was a demonstration the army was willing to take painful decisions in order to ensure it would have enough cash to operate and maintain a new armoured vehicle, such as the CCV, in future years.

Political consequences

The CCV program was loaded with political consequence for the government. General Dynamics, one of the three contenders, is a major employer in London, Ont., and a big contributor to the local economy. If it lost the competition it would be hard for the government to explain why the product of a Canadian plant potentially wasn't good enough for Canadian troops — especially after General Dynamics LAV IIIs had protected Canadian soldiers in Afghanistan over the course of the last decade.

At the moment, General Dynamics is also engaged in a major overhaul of 550 of Canada's war-ravaged LAV IIIs intended to re-armour and otherwise upgrade the vehicles for years to come. Those two facts — that the Canadian Forces is not at war now, and it's getting upgraded armoured vehicles anyway — combine into a formidable argument against continuing with the CCV program.

But that side of the debate ignores that the CCV would still offer better protection against mines and roadside bombs should Canada be drawn into war again, soon. It also doesn't deal with another possible problem — damage to the government's reputation.

The three bidding companies have together spent tens of millions of dollars to compete in the CCV program, even providing versions of their vehicles to be driven and later blown apart in explosive testing. Industry sources tell CBC News they're hearing overseas defence suppliers are thinking about not bidding on future military contracts because they worry the Canadian government can't be trusted not to waste their time.